Does Your Company Have This Secret Sauce?
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The headline on CNBC.com read, “New-Home Sales Slip in May, Another Sign of Slow Recovery.” The news is bad - even grimmer for those hoping to actually sell their home.
In today’s market home sellers know they just can’t slap on a new coat of paint or rearrange the furniture to attract buyers: they’ve got to come up with something new, something smarter, than the competition if they want to sell their homes.
Today’s businesses are a lot like today’s home sellers: You can’t survive by doing what worked in the past – you need to shift.
Gary Keller with Dave Jenks and Jay Papasan, have written SHIFT: How Top Real Estate Agents Tackle Tough Times and they say, when life shifts, you must shift to be a success. In their book "shifting" is the secret sauce of the world's greatest leaders and businesses.
Keller Williams Realty, Inc., the third largest real estate franchise in the US, recently launched SHIFT, a tell-all of how the company outpaced the market in 2008, all while remaining completely financially solvent and giving back more than $30 million in profits to its agents.
Below is a guest blog by one of the authors of Shift, Mr. Papasan.
Markets shift. So can you.
In The Traveler’s Gift, Andy Andrews passes on the wisdom that “our lives are fashioned by choice. First we make the choices. Then our choices make us.”
What choices are you making today to ensure your business is successful?
Most people lead a “flow with the tides” life. Their careers and their fortunes seem to rise and fall with the tides of the market. When things are going well anything and everything works—their boats float. What they fail to realize is that literally all boats float at high tide and no captain gets credit for that! When times get tough and the tide goes out, all of the sudden not everything works. Their boats don’t float.
Those quick to adjust will have a floating boat.
On the rocks or out at sea—the choice is yours. Be a low-tider—always be prepared for low tides.
To help keep you afloat, our research shows that the two actions any business owner must take personal ownership of are lead generation and lead conversion—how you attract customers and convert them to closed sales.
First, by getting personally involved, you get an immediate and ongoing sense of the issues of the market—the customer objections that need to be overcome. Second, you will get an honest understanding of the conversion rates that are possible. It’s what I call “management by wandering around.” Think of Sam Waltonwho started Wal-Martwho spent many a day visiting his stores, working cash registers for hours at a time, and talking to customers to stay in touch with the market.
As business analysts have often pointed out, “the seeds of failure are usually sown during times of success.” The most humbling lesson of a shift is this—we succeed in good times not only because of what we do right, but also in spite of what we do wrong. Now that the market has changed, what worked yesterday probably won’t work today. So when you’re making critical business decisions in today’s market, the margin for error is thin and you will most likely have to ask, “Who should be doing this? Me or someone else?”
The way to resolve this is by asking one more question: “Who will do this the best?”
Once you have shifted your mindset and gotten clear about your priorities, the first and fastest thing to do to get you back to profitability is to cut costs. The number one determinant of thriving is attracting customers, but the number one determinant of surviving is expense management. When markets shift, the first change a business must make is “re-expense” itself. “Revenuing” your way out of a shift is iffy at best. Generating more income may be impossible in the short run and take too much time in the long run. This approach is always just too little too late. Now is the required speed when a shift occurs. Get your expenses lower now!
I cannot overemphasize the importance of always working from a position of profitability. To generate revenue you generate leads. To make a profit you manage expenses.
Interestingly one might think that the goal of profit would provide the motivation necessary to do this, but research and personal experience have proven otherwise. Fear of financial loss is a more powerful motivator than the opportunity for financial gain.
If a market shift causes your income to drop but your expenses don’t immediately drop in lockstep with it, then your profit margin is gone. And along with it your competitiveness. If this lasts long enough you will go out of business because no profit and no competitiveness means no business.
In up markets we tend to acquire habits and patterns of doing things that don’t stop us in good times, but grind us to a halt in bad times. Good times seem to reward all that we do and profit seems to give permission to be permissive. Do you spend based on your average, your last year, your best year or your goals? No matter the market you should always follow the philosophy of “lead with revenue.” This means either always working from a position of profitability or, if just getting started, working from a position of having enough revenue already on the books so you know exactly when profitability will start.
Next you must protect your margin and reduce expenses to match your income—plus an acceptable profit margin. Be brutal. Cut! Cut! Cut! Attack both variable and fixed expenses. Fixed expenses are always agreements that usually fall into the categories of car payment, rent, leases, advertising, phones or salaries. Here you are best served by thinking of ways to turn fixed into variable. Re-budgeting is your first issue and if you don’t get it right it just may be your last one too.
Warren Buffett teaches “the first step to financial recovery is to stop doing the wrong things. It’s an old principle. You don’t have to make it back the way you lost it.” Define a benchmark dollar result you should expect from every dollar you spend and until you get that result don’t spend any more. This is the most important business discipline you’ll ever need. The key to re-margining and changing your budget is changing the way you think. If money matters then managing that money matters.
The top business minds have become the best by mastering the fundamentals of attracting customers, closing sales and managing money effectively over the long haul. It’s business 101. Maybe the reason the basics are so often abandoned is the fact that they aren’t special, unique or new. But when business gets tight, they reveal themselves as the timeless factors that determine the difference between success or failure. School is never out for the motivated. The basics are never outdated.
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